Denver and the West

Denver auditor blasts DIA's latest cost increase, says probe planned

Construction continues Tuesday at Denver International Airport. DIA manager Kim Day says the new budget figures are products of a risk analysis undertaken to estimate the final project costs. (Hyoung Chang, The Denver Post)

Denver's auditor on Tuesday called the escalating cost of Denver International Airport's construction project "a significant budget risk" and said his office will investigate what caused the latest increase.

"I am concerned that the budget for DIA's Hotel and Transit Center apparently once again needs to be increased. A project originally budgeted at $500 million is now projected to be $598 million," auditor Dennis Gallagher said in a statement.

Airport officials on Monday disclosed that the project's cost may rise 5 percent to 10 percent to as much as $598 million. With related costs included, the project budget estimate now ranges from $703 million to $730 million.

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On Tuesday, during her annual "State of DIA" speech, airport manager Kim Day said increased competition for construction work is driving the increase. She later added that an accelerated work schedule and "unexpected conditions in excavation" also are contributing.

But the cost increase for the 519-room Westin hotel, train station and glass-covered plaza are "within the industry norm," she said, and will not affect other planned capital-improvement projects or DIA's airlines.

"We remain committed to transparency, financial responsibility and diligent oversight through to completion," Day said. "Billions of dollars and our region's competitiveness on the global stage are at stake."

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Day said the new budget figures are products of a risk analysis undertaken to estimate the final project costs. For that reason, the airport is not asking the Denver City Council for a budget increase at this time, she said.

The anticipated cost increases will be paid with cash reserves, she said, and the airport is unlikely to borrow more money from the bond market this year.

Airport reserves have grown from $530 million in 2012 to about $600 million today, spokeswoman Stacey Stegman said.

Denver Mayor Michael Hancock expressed pride in the airport and confidence in its leadership.

"Let me address the elephant in the room," Hancock said before he introduced Day at the luncheon. "No one likes to see cost increases. We accept our accountability."

He said his administration will remain vigilant to keep costs under control and the project on time.

The project budget has climbed twice in 13 months. In March 2013, the City Council approved raising the budget to $544 million from $500 million.

Day used a home-renovation analogy to defend the airport management's decision to separate those costs.

If you're renovating your kitchen and decide to do some bathroom remodeling while the contractor is there, that shouldn't be counted as part of the kitchen project, she said. "At least that's not the way I would manage it."

Gallagher said his office has begun an audit of DIA project costs that will try to identify the causes of the latest increase. His spokesman, Denis Berckefeldt, said the audit also will inquire whether the airport properly excluded costs from its project budget.

Gallagher noted that in a January 2012 audit of the project, DIA officials said a 10 percent overage would pose a significant budget risk.

"Those were DIA's words, not ours, so a 20 percent increase poses a significant risk according to them," Berckefeldt said. "In our minds, being 20 percent over in this day and age is a problem."

During her speech to business leaders, Day said fierce competition from airports in Asia and the Middle East could drop DIA to 18th- or 19th-busiest in the world in the next few years, arguing that this project is a necessary, forward-looking investment.

"DIA will likely rank 15th among the busiest airports in the world for 2013," she said. "That's the lowest we've been since we began tracking passenger traffic in 2000."

Moody's Investors Service assigned the airport a negative outlook for the past three years, citing the redevelopment project as a factor.

Southwest Airlines spokeswoman Michelle Agnew said the airline partnered with DIA to keep costs down and added that the South Terminal project "does not greatly impact" the airline's daily operational costs.

DIA is a self-supporting department of city government, raising most of its revenue from airline fees, concessions and parking.

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